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Best Buy Is Losing Its Best Chance of Survival: Jeff Macke

Bernice Napach

Daily Ticker•February 14, 2013

Hope may be running out for Best Buy (BBY). Since Richard Schulze, Best Buy's founder and former chairman, announced plans last August to take the ailing electronics retailer private for $10.8 billion -- including debt -- the stock has plunged almost 25%.

The company's board rejected Schulze's initial offer to buy back the company. Schulze has missed several deadlines to give the board another proposal; the next deadline is Feb. 28.

Schulze may scrap his bid in favor of lining up investors to take a minority position in the company, according to The Wall Street Journal. He owns about 20% of the company and is its largest shareholder.

Can this last ditch effort, which hasn’t even been confirmed by Schulze or the company yet, save Best Buy? Jeff Macke of Yahoo! Finance says that’s unlikely unless Best Buy changes “radically," which he doesn’t expect it will do.

“There’s not really any space in the marketplace for 150,000 square-foot stores that sell a bunch of TVs,” says Macke.

The Daily Ticker’s Henry Blodget says Best Buy and other electronic retailers with physical stores are “basically showrooms for Amazon (AMZN). [Consumers] come in and test the products, and then buy it cheaper on Amazon and have it shipped to your house.”

Macke says Best Buy lost an opportunity that Target (TGT) and Wal-Mart (WMT) took: matching the price of major online retailers selling the same item for less.

“If you’re a retailer and you get people coming into your store with the stated intent to buy a product and you don’t sell it to them you’ve got troubles and that’s what’s going on at Best Buy.”

Its best chance – and maybe only chance—to survive is a successful bid by Schulze. But executive buyouts aren’t a sure thing. Even Michael Dell’s offer to take Dell (DELL) private is running into trouble. Several of company’s s biggest shareholders—including T. Rowe Price and Southeastern Asset Management—are opposing the $24.4 billion deal as too cheap.

“Best Buy and Dell are losing share fast," says Macke. "They’re worth more private to these guys—Schulze and Dell—than they are in the public market…they’re not going to get a better white knight. In both cases the boards... the shareholders and the big institutions got too cute and now they’re going to lose the entire deal."

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